IMF deal to improve funding for Pakistan: Moody’s

Global rating agency Moody’s on Tuesday said that Pakistan’s recent staff-level agreement with the International Monetary Fund (IMF) will improve funding prospectes for the cash-strapped South Asian nation.

The Shehbaz Sharif-led government and the IMF reached a three-year, $7 billion aid package deal on Saturday, providing much-needed respite to the nation. This agreement marks a critical step towards stabilizing Pakistan’s economy, which has been under severe strain.

Moody’s commented that the new IMF programme would enhance Pakistan’s (Caa3 stable) funding prospects. However, Moody’s cautioned that the government’s ability to sustain reform implementation is crucial for Pakistan to continually unlock financing throughout the IMF programme’s duration, thereby easing government liquidity risks durably.

The agency outlined that the new IMF programme entails comprehensive reforms, including measures to broaden the tax base, remove exemptions, and adjust energy tariffs promptly to restore the energy sector’s viability. Additional reforms include improving the management and privatization of state-owned entities (SOEs), phasing out agricultural support prices and associated subsidies, and gradually liberalizing trade policy.

Moody’s also acknowledged potential challenges, noting that social tensions arising from the high cost of living could impede reform implementation, especially with higher taxes and future adjustments to energy tariffs. “Moreover, risks that the coalition government may not have a sufficiently strong electoral mandate to continually implement difficult reforms remain,” the agency added.